The New Reality of $90-Plus Oil

Now that there are rumors that the world economy is showing some signs of self-sustaining life (if not particularly the US Economy), one thing worth thinking about is where oil prices are likely to go (1).

Starting from the basics, there are a plenty of theories that explain how to grow economies. They range from free-markets to free-debt, all the way through stimulus-packages to free-love.

Here’s another one: (Click to enlarge)

Conventional wisdom says GDP drives demand for oil.

How about if oil drives GDP?

Or in any case like it’s an essential “nutrient” for economies, like without it, they go nowhere?

Forget about how that came about or “cart-before-the horse”… perhaps the processing of oil into something else drives GDP? In other words, perhaps ultimately a big part of “modern civilization” is about making a margin on processing that feedstock into “value”?

That’s not completely insane, right now the way the world is configured, if you cut off oil supply, “modern” economies wouldn’t work. It doesn’t matter how brilliant or productive a worker is, if he has to walk ten miles to get to work in the morning, the amount of “productivity” you are going to get from him will be less than if he drives to work.

By the same token, perhaps a better measure of “productivity” might be how much GDP you get per barrel of oil, not per worker?

GDP per barrel of oil:

Looking at the chart, by that benchmark European economies, which for the most part were galvanized into looking for oil efficiency after the first oil-shock, are more “productive” than USA. They have smaller cars, higher gasoline taxes, better public transport, and more concentrated cities - as opposed to oil dependent suburban sprawl.

Extend the purple line on the chart